Pandemic focuses attention on ‘force majeure’ contract clauses

Among the once-obscure words and phrases that COVID-19 has made commonplace, at least in legal and business circles, is the term “force majeure.”

Literally, force majeure is French for “superior force.” In practice, it is an often-used provision in business contracts that excuses parties in the contract from their legal obligations in the event of extraordinary events such as war, hurricanes – or, in some cases, pandemics.

Such provisions have been routinely overlooked in contracts in the past, but not anymore. Business owners who had to shut down and can’t pay their rent, landlords who need rent money so they can pay their lenders, construction companies that had to stop working and now face penalties – these and many others have been poring over their contracts and, in some cases, going to court to determine the impact, if any, of a force majeure clause.

And, of course, their attorneys have gotten involved.

“I think most lawyers dusted off their hornbooks and took a look at this,” said Timothy F. Maloney, a principal at Joseph Greenwald & Lake PA, in Greenbelt.

And, they agreed, such clauses are sure to be more tightly drawn up and closely scrutinized in the future.

Kimberly J. Min, a partner at Whiteford Taylor Preston and co-chair of the firm’s real estate practice, said she already sees more specific force majeure clauses in purchase agreements than in the past.

“People are looking much more carefully at their contracts,” she said, and added: “I think clients will not blow me off when I’m trying to talk to them about these risks. They won’t think I’m a nervous Nellie anymore.”

Force majeure is a cousin to other provisions common in contracts that can free one party from its obligations, such as the doctrine of frustration of purpose, which is triggered when an unforeseen event eliminates one party’s purpose for having the contract.

Maloney said that during the pandemic, force majeure has been used more often in attorneys’ letters than in actual litigation.

“I’ve seen no appellate decisions, no circuit court decisions yet,” he said. “But people are raising it in negotiations.”

Force majeure is a “narrow doctrine,” he said, and a contract typically lists the events that would be covered. If the clause does not list a pandemic, he said, the clause usually cannot be evoked.

The result of any cases involving force majeure, agreed Deborah B. Baum, a partner with Pillsbury Winthrop Shaw Pittman LLP, in Washington, hinges on the specific language in the contract, which varies from contract to contract.

“Force majeure covers only what you mention,” she said.

Under litigation

Still, some people are trying. Force majeure has been used far more often than in the past for such issues as nonpayment of rent for businesses and event cancellations, said Ira Kasdan, a partner in the Washington, D.C. office of Kelley Drye & Warren LLP.

“It’s been contentious and it’s been litigated,” Kasdan said. “There have not been as many important cases as I had expected, but I’m sure a lot more are in the pipeline.”

One factor that might be keeping more of these cases out of the justice system is that both sides in the dispute have an interest in maintaining relations.

Landlords and their business tenants, perhaps the most common potential litigants in these cases, both have a strong interest in preserving their relationship, which means not going to court. The landlord needs tenants, as he has to pay his lender and the tenants need their place of business for when the pandemic ends and business returns.

Similarly, businesses that stage events or rent out space have an interest in maintaining good relations with the people and businesses that contracted to hold an event but had to cancel because of the pandemic, and so generally are willing to negotiate.

As a result, attorneys said, the two sides in many of these pandemic-prompted disputes have negotiated an agreement rather than gone to court.

One thing the attorneys unanimously agreed on is that force majeure clauses have gotten far more attention in the past several months than any could recall.

“It’s getting more attention than I’ve ever seen, but I’ve only been doing this for 35 years,” Baum said wryly. “In the future, I am confident parties will be specifically negotiating over whether a pandemic will be included in force majeure clauses. … This is the type of thing most people didn’t contemplate. But I don’t think anyone rules out the possibility of it happening again.”

“A lot more lawyers, and the public, have come to recognize the importance of the force majeure clause,” Kasdan said. “So now they are scrutinizing it and drafting more carefully for the future.